Discussion paper

DP4039 Inside-Outside Money Competition

We study how competition from privately-supplied currency substitutes affects monetary equilibria. Whenever currency is inefficiently provided, inside money competition plays a disciplinary role by providing an upper bound on equilibrium inflation rates. Furthermore, if ?inside monies? can be produced at a sufficiently low cost, outside money is driven out of circulation. Whenever a ?benevolent? government can commit to its fiscal policy, sequential monetary policy is efficient and inside money competition plays no role.

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Citation

Marimon, R, P Teles and J Nicolini (eds) (2003), “DP4039 Inside-Outside Money Competition”, CEPR Press Discussion Paper No. 4039. https://cepr.org/publications/dp4039